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It's obvious that the Feds are building their case against Cohen, they are much more interested in the top dog than the lieutenants. We've seen how in many of these white collar cases, the lieutenants all turn and cut deals when the heat rises. It will be interesting to watch.

I think as a mutual fund, there are restrictions how how much of his portfolio is allocated to stock in an individual broker/dealer (i.e. there would be a perverse incentive to use that broker/dealer instead of the one with the lowest cost to clients). I think I recall Berkowitz saying somewhere in an interview that he has the maximum legal position in BAC. A quick google search seems to indicate that the limit is about 5% on broker/dealers. So I am not seeing how he is at a maximum for BAC. I think he might be at a maximum for the warrants. http://www.wilmerhale.com/files/Publication/caed18bf-4ba9-45c1-99ff-cf504407c591/Presentation/PublicationAttachment/1ef16c13-af40-4b19-a328-e866a8e9ecc0/2001_04_complianceissues.pdf Vinod Hmm... unless I am misinterpreting, slide 27 says that mutual funds cannot buy 5% of a broker-dealer's shares (Berkowitz does not hit this limit, as BAC has about $100B market cap) and slide 28 says a fund cannot put more than 5% of its assets into a broker-dealer. It seems like Berkowitz has way more than 5% of his funds in BAC. Not sure how that works.

I think as a mutual fund, there are restrictions how how much of his portfolio is allocated to stock in an individual broker/dealer (i.e. there would be a perverse incentive to use that broker/dealer instead of the one with the lowest cost to clients). I think I recall Berkowitz saying somewhere in an interview that he has the maximum legal position in BAC.

I rolled over to a traditional IRA and then slowly transferred money from the traditional IRA into a Roth IRA. That is probably the best way to do it because you have more investment options outside of your 401k, and you can figure out how much you want to get taxed each time. Just remember to pay your taxes, I screwd up a little bit and got penalized (thankfully, since interest rates are extraordinary low, the penalty was pretty small).

http://video.cnbc.com/gallery/?video=3000120859&play=1 The analyst says that he thinks BAC will be a "home run 3 years out", but in the next 6-12 months, it is not exciting because it is pretty close to his short term price target. We had the same behavior at AIG too before the +50% run up where analysts realize that it is a simple insurance company now and it is far cheaper than any other insurance company out there, but due to whatever reasons (most likely career risk) they cannot give it high marks because of stuff like the government will own it for one or two more years. It is a good position to be in when everybody rationally concludes that it will double in a few years, but then their brains turn off and they are avoidng/selling because it won't double tomorrow.

In theory, it is possible, but it may be very hard to execute for the retail investor. You have to be a lot more diversified because of the nature of options (as someone else pointed out, if Mr. Market doesn't agree with your on expiration date...), but options typically have much bigger trading costs. Every time I look at options, I think about the fees per trade, per contract, and for the potential exercise and wonder how the heck can I make money on this? I think you need to get institutional pricing in order to have a chance.

Zynga is not only a fad, but it is also horribly managed. There are certain companies, such as Google, that can afford to pay their employees very high salaries and give huge perks and benefits because that cost is so insignficant to their business. And Google's R&D actually needs the best and brightest PhD types as they are doing stuff like self-driving cars (I don't think that is a good investment for Google, but that's a different story). I don't think there is any collection of artifical intelligence and machine learning talent as good as Google's and that is their advantage going into the future. Making games do not need the genius PhD types with 1-in-a-million type of intelligence. Zynga does not need to spend $200+ million buying some really fancy headquarters to retain talent. Cash becomes a generic "asset" and this asset just sits there doing nothing. People who work for Zynga get to enjoy it, but the shareholders get shafted. It is just Pincus's dream to run an empire and Zynga is this big elaborate pyramid that he built. I think even if Zynga comes up with another big hit and they make a lot of money, Pincus will spend it all.

If book value per share continues to compound at 15% per annum, as I expect it to, then you can expect FFH to double every 5 years or so, which means FFH will be a pretty big conglomerate in 10-15 years, much like Berkshire is right now. Monish Pabrai would probably agree when I say that I think the model is very clonable, but very few people try to do it. It is hard to find someone like Buffett or Prem who doesn't take a huge cut of the assets under management or the profits from investments, they only get paid a modest salary and most of their compensation comes as being a shareholder. We are all equal partners in the business. Most other attempted "clones" have the manager scoring big fees, and over a 10 or 20 year period that compounding effect ends up being a huge portion of the total return. It also creates a perverse incentive as it rewards increasing AUM or short term gains. People like Buffett and Prem can make a lot more money for themselves if they wish, but they choose to be equal partners with their shareholders.

I don't think many people believe that the base case will be inflation, but most realize that it is a possibility. Prem got the deflation hedges for cheap, and since deflation is not happening, they are clearly underwater. As expected, you buy insurance and the catastrophe doesn't happen, you are worse off. But you don't buy life insurance hoping you will get hit by a bus tomorrow. Just take a look at how the world is reacting to the crisis. Some countries actually choose austerity. If the US went that route (and at the time, there was a small chance that they would), then I think we would have some deflation. Deflation is very high risk to insurance companies, most of them would go bankrupt (I think I remember Prem saying that 9 out of 10 insurance companies in Japan went bust). All your existing policies would flip inside out as you have to pay out more in real terms than you collect in and a deflationary environment would probably knock down the market valuations of all your existing investments. Suddenly, your balance sheet doesn't have enough to cover your insurance policies and you are toast. The deflation hedges were priced cheaply, so it's a small price to pay to take the tail risk off the table.

I think for banks, at least in the short term, QE will make their balance sheet stronger because it supports real estate or mortgage based securities (the Fed can buy mortgage-backed securities directly). So if the market is pessimistic about the quality of a bank's book because they are afraid that a downturn may make things go sour, they can be a bit more confident because QE guarantees that those assets will not go down too much as the Fed is a huge buyer. However, QE is not good for the margins of the banks going forward because it means "extraordinary low interest rates for an extended period of time". You need to wait until QE is over, and then some time after that, before you can reasonably expect the Fed to raise rates, so more QE means that this is further out. So it works both ways. It supports banks from the bottom, but also holds them down from the top. For a stock like BAC, it's probably a good thing because the market is valuing them below tangible book, but it doesn't really help the top line. BAC would probably prefer interest rates to be 75 basis points higher if the regulators are not breathing down their necks about capital requirements. The stock may go up on QE due to less fear about the bottom falling off, but it is not exactly good for earnings over the next year.

You don't need huge year over year improvements to sell iPhones any more. Providers are subsidizing the cost of the phone with a 2 year contract, so it makes a lot of sense for people to replace their phone every 2 years. I replaced my iPhone 3 with an iPhone 4GS last year. I sold my used iPhone 3 for about $200 to cover the $200 I needed to buy the iPhone 4GS. So it was basically a free upgrade. Even without this subsidy, phones don't have very long lifetimes. I take very good care of my phone so it can last years, but most people don't. The phone gets scratched up or the battery doesn't hold its charge that well after 2 years. Or the home button starts coming loose (a lot of people press that button really hard for some reason). Some people lose their phones. Because it is a portable and chargable device, not one that sits under the desk all day, it takes quite a beating. A lot of people want to replace the phone because it's getting worn out. Depending on how much money I can get for my iPhone 4GS, I may buy an iPhone 5 and sell the 4GS. The effective "rental rate" is pretty cheap for Apple products because the old ones hold their value very well.

If BAC plays out like I (and a lot of people on this board) expect it to, it will probably become a "hold forever" type position because of the tax consequences. Don't forget the expected capital gains tax increases for those in the U.S. I made the mistake of getting too happy when I sold my AIG bonds that I brought in 2009 to lock in a 1000% gain (it was my first 10-bagger). Within a hour of my celebration, I thought about the tax consequences and it felt like a knife twisting in my chest because I realized I made an incredibly dumb mistake. That big check I wrote to Uncle Sam could have been generating nice interest payments for the next decades. If you have a big gain and there is nothing wrong with the company, just sit on your ass and let it compound.

I have been a long time lurker on this forum, mainly because I can't sign up for some reason (maybe I go straight to the spam box), but I got in today. It's not easy keeping the quality of the community high. Good job Sanjeev.